Finance Committee on Oct. 21st, 2014

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

This is credit unions across Saskatchewan. That would be the reason to support this for Saskatchewan.

I'd be curious if you could provide us with what the number is across Canada for credit unions in terms of their representation.

One criticism of your ask is that for many credit unions, a large percentage would fall under the exemption for small businesses, and that wouldn't be hit by the tax increase that came from the federal government in budget 2013. Is it a fair criticism to say that most credit unions would be exempt from this policy?

[Eric Dillon]

It's not.

To answer your first question on the amount of lending that credit unions do in Canada, we hold 18.6% of the small business market across the country.

On the second question, there are varying sizes of credit unions, and what happened with the old policy was about 10% of those credit unions would be eligible, but that only represents about 30% of the assets held in Canada because of the varying sizes.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Right, so the vast majority of capital that's held in credit unions was exposed to the tax hike in the 2013 budget, just being larger than a small business designation.

[Eric Dillon]

I don't have those numbers handy but I'm certainly happy to provide them to the committee.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

I have a quick question on what, for us at least in the opposition, was a surprise tax hike on credit unions in the 2013 budget. What consultation or notice was given to you by the federal government before that tax hike was introduced in the budget?

[Eric Dillon]

There was no consultation with the credit union system.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

That's not very nice.

Mr. Moffat, I'm looking through some of what you said today and also some of your writing around the government. They've set up a panel to reduce red tape, which is somewhat ironic in its structure, but it's an understood effort and maybe even noble, yet at the same time increasing the complexity of the tax system for Canadians. Why is that a problem?

Many of these complexities are added in what we generally call boutique tax credits that are politically popular sometimes. Why is that such a problem for Canadian businesses if all these boutique tax credits keep adding up?

[Mike Moffat]

It's more a problem for Canadian households. I would like to start by applauding the government for taking the initiative to cut red tape. As a business owner, I highly appreciate that, economic analysis aside. It's more a problem for households. Again, you're forcing households to save a bunch of receipts and then at the end of the year collect them all and fill out these various tax forms. They all work against each other. They all complicate the system, and you get these larger and larger—

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Are they efficient?

[Mike Moffat]

Not particularly, no. If efficiency is defined as changing behaviour, there's not a lot of evidence that they do that.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Let me ask the contrary question then. Has your department done any analysis of what's called the free rider effect on some of these government programs in the sense that it's a new tax measure to encourage Canadians to do something they were going to do anyway?

[Mike Moffat]

Again, I did not write any of the papers on that issue, but there was an issue of the Canadian Tax Journal which looked at exactly that question. They surveyed households, and households were happy to get it. If you want to give households a cheque, we're all happy to get that, but households said that they were going to do those things anyway, that essentially they were getting paid to put their kids into hockey or ballet or what have you, and those are all things that families do.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

In a sense it depends on what your intention was when you started out to do it. Was it to change some behaviour, or was it to lower taxes? If it was mostly the second, are there more efficient ways to lower taxes for Canadians than this string of complicated boutique tax credits that come out of the government?

[Mike Moffat]

Oh, absolutely. You could just lower income tax rates, particularly at the low end. You could increase the universal child care benefits. You could increase HST rebates. You could do it all in one thing, rather than a little bit here and a little bit there, and trust families to do the right thing, because Canadian families care about their kids. I don't need incentives to put my kid into swimming lessons; I'm happy to do it anyway.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Very quickly, Mr. Cockfield, do you have anything to add to that commentary with respect to the complexity of the tax code and maybe what burden it puts upon Canadian businesses and families?

[Prof. Arthur Cockfield]

I would tend to agree with Professor Moffat that it creates an economic drag over time, because many of these incentives often work against each other, and from an economic perspective nobody is sure whether they promote the goals that the legislators initially intended.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Cullen.

Mr. Keddy, you have seven minutes.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Welcome to our witnesses. It's an interesting discussion today.

Mr. Moffat, you talked a little bit about the overregulated tax regime we have. I think most of us around the table would have to agree with you on that comment, quite frankly. It's also very difficult to put a little bit of water or wine into that soup to make it a little thinner; there's a lot of pushback when you try to do it. I think we all agree that it is overly complicated, and especially the tariff code.

I would like you to expand on that a little bit and give three quick examples, if you could, of an overly complicated tax system and tariff code.

[Mike Moffat]

I think the first example was the whole iPod tax debate. We have these items, and the question became whether a television or an MP3 player is a piece of consumer electronics or is considered a computer part, which comes under a special tariff treatment. Depending upon what the answer is, there is a different tariff rate, and nobody was really quite sure.

There really doesn't seem to be any logical reason we should be putting tariffs on televisions and MP3 players in the first place. There's no domestic Canadian industry to protect there. That's one about tariff codes.

You have tariffs as well whereby there might be a 1% or 2% MFN rate placed on international imports and a 0% tariff rate for U.S. imports. For reasons of geography, basically everybody is importing from the U.S. anyway, but to get that 0% rate, you're having to go through all of this paperwork.

What you could instead do for everything from grape crushers to storage heating radiators to chemicals such as propylene polymers is reduce the MFN rate to zero. It wouldn't really change where we're importing from at all, and wouldn't change the amount of government revenue, because we're not collecting much revenue on these in the first place, and would save the government and businesses a lot of headaches.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

I'm not sure I got three recommendations there and I'm not sure I agree with you on whether it's an iPod tax or not. However, you said one other thing that I want to follow up on. That is about the HST rebate plan.

Don't mistake me here: this is a single question from a member of Parliament; this is not government policy, but for the life of me, I can never understand why we give HST money back to anybody. We spend a lot of money to gather this tax and then we rebate it to university kids and a whole bunch of people who may or may not qualify but do qualify on paper.

Do you want to make a quick comment on that?

[Mike Moffat]

I would fully agree with that. I think there's room to merge some of these plans, such as the HST rebate and the universal child care benefit, into a single cheque that's better targeted towards Canadians.

I absolutely agree that this money could be packaged in a more sensible way.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

It's rather circular.

[Mike Moffat]

Yes.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Very quickly, because we have a limit on time, and our chair is very mean, I can tell you, let me ask Mr. MacDonald of Imagine Canada this. You talked about Visa, MasterCard, major credit card companies and banks reducing or eliminating merchant fees. You also talked about coming to the table, which is an expression that I really like, but have you as the charitable sector invited the major banks and the credit card folks to your table to ask can we get rid of the credit card fees on charitable giving?

[Bruce MacDonald]

Over the last number of years we have had some conversations with the credit card companies. I think it's one of those areas where obviously it's kind of a new approach, and what we're seeing around the globe is other jurisdictions starting to see some changes in this area that are really beneficial for charities.

We're hoping this is the beginning of a conversation that will really see a dramatic impact for us.